Question 1

An example of a fixed- rate OTC instrument is share price index futures.

Accepted Answer

A) True 
 B)False

Question 2

Instruments whose price involves bilateral negotiation rather than a bidding process are known as___________ instruments.

Accepted Answer

A)  over- the- counter 
B)  public- exchange- traded 
C)  not- for- negotiation 
D)  mark- to- market 
A)  over- the- counter 
B)  public- exchange- traded 
C)  not- for- negotiation 
D)  mark- to- market

Question 3

The value of the hedge ratio is that it tells us PVBP per unit of exposure to price risk.

Accepted Answer

A) True 
 B)False

Question 4

List the dangers of using derivatives.

Accepted Answer

Derivatives carry risk, like all financi

Question 5

Explain the algebraic equation for a derivative A = B + C.

Accepted Answer

In this expression A is the position in

Question 6

If we buy a $100 90- day bank bill futures contract at $95.60, which of the following is true?

Accepted Answer

A)  We pay $98.23 on settlement day. 
B)  We receive a bank bill on settlement day worth $95.60. 
C)  The bill will earn us 4.40% p.a. over 90 days starting from the settlement date. 
D)  There is a cash settlement involving us in paying $4.40. 
A)  We pay $98.23 on settlement day. 
B)  We receive a bank bill on settlement day worth $95.60. 
C)  The bill will earn us 4.40% p.a. over 90 days starting from the settlement date. 
D)  There is a cash settlement involving us in paying $4.40.

Question 7

When there is a 'contango' in futures markets, it means that the spot price is below the futures price.

Accepted Answer

A) True 
 B)False

Question 8

The most frequently traded derivatives in Australia are forward foreign exchange contracts.

Accepted Answer

A) True 
 B)False

Question 9

The Share Price Index (SPI) contract traded on the SFE has a face value equal to:

Accepted Answer

A)  $1000 × (All Ordinaries index). 
B)  $25 × (S&P/ASX 200 index). 
C)  $1000 × (SFE index). 
D)  $100 × (S&P/ASX 100 index). 
A)  $1000 × (All Ordinaries index). 
B)  $25 × (S&P/ASX 200 index). 
C)  $1000 × (SFE index). 
D)  $100 × (S&P/ASX 100 index).

Question 10

Which of the following is NOT included in the specification of a FRA?

Accepted Answer

A)  The settlement date. 
B)  A benchmark interest rate. 
C)  The broker's fee. 
D)  A guaranteed interest rate. 
A)  The settlement date. 
B)  A benchmark interest rate. 
C)  The broker's fee. 
D)  A guaranteed interest rate.

Question 11

If A is the position in the derivative, B is the position in the underlying security, and C is a fixed- interest loan, if a player holds B and wishes to hedge her position then she can:

Accepted Answer

A)  buy A. 
B)  buy C. 
C)  sell C. 
D)  sell A. 
A)  buy A. 
B)  buy C. 
C)  sell C. 
D)  sell A.

Question 12

A university student uses a 'commodity futures' contract. Which of the following is the underlying product most likely to be?

Accepted Answer

A)  Shares. 
B)  Bonds. 
C)  Oil. 
D)  Cash. 
A)  Shares. 
B)  Bonds. 
C)  Oil. 
D)  Cash.

Question 13

'Basis' in futures trading is defined as the difference between the futures price and the spot price of the underlying commodity.

Accepted Answer

A) True 
 B)False

Question 14

If A is the position in the derivative, B is the position in the underlying security, and C is a fixed- interest loan, then a derivative product can be summarised as:

Accepted Answer

A)  A = B - C. 
B)  A = B × C. 
C)  A = B + C. 
D)  A = B/C. 
A)  A = B - C. 
B)  A = B × C. 
C)  A = B + C. 
D)  A = B/C.

Question 15

To hedge a share portfolio we can:

Accepted Answer

A)  buy SPI futures. 
B)  sell SPI futures adjusted for the portfolio beta. 
C)  buy and sell offsetting amounts of SPI futures. 
D)  borrow an amount equal to the face value of the portfolio. 
A)  buy SPI futures. 
B)  sell SPI futures adjusted for the portfolio beta. 
C)  buy and sell offsetting amounts of SPI futures. 
D)  borrow an amount equal to the face value of the portfolio.

Question 16

Assume a fund manager holds B. Then he can hedge this position by taking out position C and creating (B -C).

Accepted Answer

A) True 
 B)False

Question 17

A comparative advantage swap arises when:

Accepted Answer

A)  two borrowers have the same strengths and weaknesses across various markets. 
B)  one borrower is stronger than the other in all markets. 
C)  one party is a borrower and the other is a lender. 
D)  two borrowers have different strengths and weaknesses in differing markets. 
A)  two borrowers have the same strengths and weaknesses across various markets. 
B)  one borrower is stronger than the other in all markets. 
C)  one party is a borrower and the other is a lender. 
D)  two borrowers have different strengths and weaknesses in differing markets.

Question 18

In the infamous Barings Bank disaster, the losses came about due to:

Accepted Answer

A)  contagion. 
B)  mismanagement. 
C)  margin calls. 
D)  speculation. 
A)  contagion. 
B)  mismanagement. 
C)  margin calls. 
D)  speculation.

Question 19

An instrument that involves the exchange with a notional principal of $100 million of floating rate for fixed- rate obligations with eight settlement dates is an example of:

Accepted Answer

A)  a share option. 
B)  a forward rate agreement. 
C)  an interest futures contract. 
D)  an interest rate swap. 
A)  a share option. 
B)  a forward rate agreement. 
C)  an interest futures contract. 
D)  an interest rate swap.

Question 20

The growth of derivatives:

Accepted Answer

A)  in recent years has gone into reverse. 
B)  did not live up to early expectations. 
C)  took the Reserve Bank by surprise. 
D)  was a response to increased volatility of financial markets following deregulation. 
A)  in recent years has gone into reverse. 
B)  did not live up to early expectations. 
C)  took the Reserve Bank by surprise. 
D)  was a response to increased volatility of financial markets following deregulation.

An example of a fixed- rate OTC instrument is share price index futures.

Instruments whose price involves bilateral negotiation rather than a bidding process are known as___________ instruments.

The value of the hedge ratio is that it tells us PVBP per unit of exposure to price risk.

List the dangers of using derivatives.

Explain the algebraic equation for a derivative A = B + C.

If we buy a $100 90- day bank bill futures contract at $95.60, which of the following is true?

When there is a 'contango' in futures markets, it means that the spot price is below the futures price.

The most frequently traded derivatives in Australia are forward foreign exchange contracts.

The Share Price Index (SPI) contract traded on the SFE has a face value equal to:

Which of the following is NOT included in the specification of a FRA?

If A is the position in the derivative, B is the position in the underlying security, and C is a fixed- interest loan, if a player holds B and wishes to hedge her position then she can:

A university student uses a 'commodity futures' contract. Which of the following is the underlying product most likely to be?

'Basis' in futures trading is defined as the difference between the futures price and the spot price of the underlying commodity.

If A is the position in the derivative, B is the position in the underlying security, and C is a fixed- interest loan, then a derivative product can be summarised as:

To hedge a share portfolio we can:

Assume a fund manager holds B. Then he can hedge this position by taking out position C and creating (B -C).

A comparative advantage swap arises when:

In the infamous Barings Bank disaster, the losses came about due to:

An instrument that involves the exchange with a notional principal of $100 million of floating rate for fixed- rate obligations with eight settlement dates is an example of:

The growth of derivatives:

Financial Markets

Debt Securities and Markets

Introduction to Financial Calculations

Banks and Other Deposit Taking Institutions

The Payments System

Managed and Superannuation Funds

Interest Rates, the Yield Curve and Monetary Policy

The Foreign Exchange Market

Listed Securities

Options

Global Financial Crisis

Managing Foreign Exchange Risk

Managing Interest Rate Risk

Filters

Exam 10: Fixed Rate Derivatives

An example of a fixed- rate OTC instrument is share price index futures.

Instruments whose price involves bilateral negotiation rather than a bidding process are known as___________ instruments.

The value of the hedge ratio is that it tells us PVBP per unit of exposure to price risk.

List the dangers of using derivatives.

Explain the algebraic equation for a derivative A = B + C.

If we buy a $100 90- day bank bill futures contract at $95.60, which of the following is true?

When there is a 'contango' in futures markets, it means that the spot price is below the futures price.

The most frequently traded derivatives in Australia are forward foreign exchange contracts.

The Share Price Index (SPI) contract traded on the SFE has a face value equal to:

Which of the following is NOT included in the specification of a FRA?

If A is the position in the derivative, B is the position in the underlying security, and C is a fixed- interest loan, if a player holds B and wishes to hedge her position then she can:

A university student uses a 'commodity futures' contract. Which of the following is the underlying product most likely to be?

'Basis' in futures trading is defined as the difference between the futures price and the spot price of the underlying commodity.

If A is the position in the derivative, B is the position in the underlying security, and C is a fixed- interest loan, then a derivative product can be summarised as:

To hedge a share portfolio we can:

Assume a fund manager holds B. Then he can hedge this position by taking out position C and creating (B -C).

A comparative advantage swap arises when:

In the infamous Barings Bank disaster, the losses came about due to:

An instrument that involves the exchange with a notional principal of $100 million of floating rate for fixed- rate obligations with eight settlement dates is an example of:

The growth of derivatives:

Financial Markets

Debt Securities and Markets

Introduction to Financial Calculations

Banks and Other Deposit Taking Institutions

The Payments System

Managed and Superannuation Funds

Interest Rates, the Yield Curve and Monetary Policy

The Foreign Exchange Market

Listed Securities

Options

Global Financial Crisis

Managing Foreign Exchange Risk

Managing Interest Rate Risk

Filters